The average cost of a new fixed-rate mortgage is continuing to creep up, data shows, as brokers warn that borrowers could face “further pain” if the latest data out this week shows inflation has risen back above the Bank of England’s 2% target.
Expectations that UK interest rates will stay higher for longer as a result of measures in last month’s budget have prompted many mortgage lenders to increase the cost of their new fixed-rate deals, while the US election result has helped to fuel the volatility.
Mortgage rates have been edging up recently and last week a long list of high street lenders pushed up the cost of many of their deals, with Barclays increasing some fixed rates by as much as 0.56 percentage points.
That has fed through to typical new fixed rates. On Monday the financial data provider Moneyfacts reported that the average new five-year deal was priced at 5.23%. The figure has increased every day since last Monday, when the average was 5.14%.
In effect it means that someone taking out a £300,000 mortgage today is paying £17 a month – or £204 a year – more than they would have had they signed up for an equivalent deal a week ago, assuming a 25-year term.
The average new two-year fixed-rate has also crept up and now stands at 5.51%.
Until a few days ago it was possible to obtain a five-year fixed-rate mortgage at below 4% after a series of price cuts, but the last deals from major UK lenders were withdrawn. The cheapest products for those buying a home now start at about 4.12% to 4.14%.
The Bank of England warned this month that the October budget would push up the cost of living. Some economists are predicting that inflation will have risen back above the Bank’s 2% target level when the latest consumer price index figures are announced on Wednesday.
Andrew Montlake, the managing director of the mortgage broker Coreco, said: “An inflationary curveball on Wednesday could bring further pain for borrowers. If headline CPI comes in higher than expected, there’s every chance rates will continue to edge up.”
Similarly, Craig Fish, the director of the broker Lodestone Mortgages and Protection, said that with inflation predicted to rise above 2%, there was every chance more lenders would continue to adjust their rates upwards this week.
David Hollingworth, an associate director at the broker L&C Mortgages, said it all depended on any increase in inflation being bigger than expected. “If it’s in line with expectations, then potentially we won’t see any more impact from that.”
Hollingworth said the situation was “not a rerun of the very high levels of volatility” seen in the last two years, but one of the messages for borrowers was: “They can’t afford to hang around if they see a deal they are interested in.”